False, More So Than True

President Obama spent some time in his State of the Union address boasting that his health care law would reduce costs.  In fact, he went as far as insisting that repeal of this trillion-dollar spending program would increase the deficit, because it saves so much money.

Intrigued by this premise, Republican Tom McClintock of the House Budget Committee asked Medicare Chief Actuary Richard Foster if ObamaCare would keep costs down.  As reported by the Associated Press, Foster’s wonderfully bureaucratic response was, “I would say false, more so than true.”

Foster is no right-wing teabagging tool.  As the AP report points out, he’s had the same little stormcloud of cold water floating over his head since the Bush years.  Actuaries are the rock upon which expensive daydreams shatter.

Foster explained that costs would increase because all of the formerly uninsured who are now covered by ObamaCare would begin draining medical resources.  That’s just common sense, and of course it’s one of the nominal objectives of Big Government health care reform. The problem is that any given resource will be used more extensively, and carelessly, as its cost is further hidden from the consumer. 

For a simple demonstration of this principle, look at the way people use cell phones.  If you’ve got a typical plan, with hundreds of anytime minutes plus unlimited nights and weekends, you think nothing of using your phone.  On the other hand, if you pay for every single minute, you’re much more likely to use the phone sparingly.  The actual cost of each minute, from the perspective of the phone company, is no different, and it’s quite possible that paying per minute would leave you with a lower monthly bill, even if you made no changes to your phone usage… but most people opt for the package plans, because they don’t want to feel nervous about using their phone at will.

ObamaCare makes the real cost of health care almost completely invisible to the consumer, especially when insurance companies are forced to cover pre-existing conditions.  The relationship between the amount of money we pay for health insurance, and the actual value of medical care each person consumes, is impossible for average people to determine.  Of course consumption will increase.

The AP article also notes that “costs could also increase if Medicare cuts to hospitals, nursing homes and home health agencies turn out to be politically unsustainable over the years.  The actuary’s office has projected those cuts would eventually force about 15 percent of providers into the red.  The health care law funnels savings from the Medicare cuts to provide coverage to uninsured workers and their families.”

One of the untold stories of ObamaCare is the number of health-care providers planning to bail out of their practices altogether because of it.  It won’t just be the 15 percent of providers who actually go into the red.  How low does the profit margin have to become, before first Medicare patients, and then all patients, are turned away by doctors and staff who don’t feel like making the heroic efforts modern medicine requires?

So, we are looking at the intersection of rising demand and decreasing supply.  There is only one destiny for price on such a graph.  It will move up, not down.  No politician can repeal the laws of supply and demand, although sometimes they can hide them from us, until it’s too late.